Monday, 28 July 2014
Last updated 5 hours ago
Feb 27 2013 | 12:34pm ET
In a ruling with a potentially wide-ranging affect on government enforcement, the U.S. Supreme Court today rejected a Securities and Exchange Commission bid to extend the statute of limitations in a mutual-fund market-timing case involving a hedge fund.
The hedge fund in question, the former Folkes Asset Management—now known as Headstart Advisors—was not directly involved in the case; it settled the matter years ago. So did the mutual fund company in question, Gabelli funds. But two Gabelli executives fought the SEC lawsuit, which accused Marc Gabelli and Bruce Alpert of approving Folkes' market-timing without disclosing it to the fund's board or investors, and while at the same time denying requests to market-time from other investors.
The last allegedly improper trade took place in August 2002, but the SEC did not sue until April 2008. A lower court approved the lawsuit, arguing that the clock doesn't start ticking on the five-year statute of limitations until the SEC had a reason to know a violation occurred.
Three years ago, the Supreme Court ruled that the statute for shareholder fraud suits doesn't begin to expire until investors have indications of company wrongdoing. But, Chief Justice John Roberts wrote for the unanimous court, the federal government is not a fraud victim, and the SEC lawsuit sought not restitution, but penalties.
"The SEC, for example, is not like an individual victim who relies on apparent injury to learn of a wrong," Roberts wrote. "Rather, a central 'mission' of the Commission is to 'investigat[e] potential violations of the federal securities laws."
"In a civil penalty action, the Government is not only a different kind of plaintiff, it seeks a different kind of relief. The discovery rule helps to ensure that the injured receive recompense. But this case involves penalties, which go beyond compensation, are intended to punish, and label defendants wrongdoers."
Jul 8 2014 | 10:48am ET
The surge in derivatives regulation is among the most complex challenges facing the financial services industry today. Northern Trust’s Joshua Satten recently spoke with FINalternatives to share insights into the challenges presented by new regulation and explore how the industry is responding. Read more…